ARV and the 70% rule, and where it breaks
A useful sanity check that gets treated as a law of nature. Knowing where it fails matters more than knowing the formula.
The mechanics
After-repair value is what the property is worth once the work is done, judged from comparable sales — not from what the owner believes, and not from an automated estimate.
The rule of thumb takes 70% of ARV, subtracts the repair estimate, and treats the result as a ceiling on what to pay. The 30% covers holding, closing, selling costs and profit.
Where it breaks
In expensive markets it is too conservative — 30% of a high ARV is far more margin than the risk warrants, and you will lose every deal to someone doing the actual arithmetic.
On light rehabs it is also too conservative, because the percentage was calibrated for projects with real risk in them.
And on heavy rehabs it is too generous. The costs that sink those projects are time and surprises, neither of which scale with ARV.
What to do instead
Use it as a first filter, then build the actual numbers for anything that survives: real comps, a real repair estimate, real holding costs for your market’s days-on-market, real closing costs both ways.
Be honest about the repair figure in particular. Optimism there is the single most common way a deal that looked fine stops being one.
Questions people ask
Is the 70% rule still relevant?
As a screening heuristic, yes — it is fast and it catches obvious non-starters. As a valuation method it never was one, and treating it as one in a competitive market means you will not buy anything.
Where do I get a reliable ARV?
Sold comparables close in location, size and condition, ideally within the last few months. Automated valuations are a starting point, not an answer, and they are least reliable on exactly the distressed properties you are looking at.
Related
Every lead on Freedom Leads is a seller who already replied to a text. $5 each, sold once, to one buyer.